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Barclays Backs Libor Based on Transactions

BlackRock and CME argue against limiting input to transaction data in comment letters.

Barclays Plc, which paid about $450 million as the first bank to settle in a worldwide probe of interest-rate rigging, said benchmarks should be tied to actual market transactions and not estimates.

Overseers of financial benchmarks should have limited or no discretion to set levels, Barclays said in a letter released yesterday by the International Organization of Securities Commissions. The letter, dated Feb. 11, was a response to IOSCO’s January request for comments on possible measures to overhaul the setting and governance of such benchmarks.

“Reporting transactions or tradeable prices available to the market would serve to reduce conflicts, especially as trades are already subject to a clear and robust regulatory framework,” Francois Jourdain, a Barclays managing director, wrote on behalf of the U.K.’s second-biggest bank by value.

Barclays, UBS AG and Royal Bank of Scotland Group Plc have paid a combined $2.5 billion since June in fines stemming from the rate-rigging investigation involving about 20 banks. An IOSCO task force, run by the U.S. Commodity Futures Trading Commission and U.K. Financial Services Authority, plans to complete the first step in overhauling benchmarks by summer, according to the CFTC.

The review will initially seek to set standards against conflicts of interest in benchmarks, CFTC Chairman Gary Gensler said on Feb. 27.

Gensler, whose agency spearheaded the investigation into Libor rigging beginning in 2008, has urged that rates be based on underlying transactions instead of estimates. He questions the long-term viability of Libor.

‘Not Anchored’

“If it’s not anchored, I don’t know what it means, truly,” Gensler said Feb. 27 at a roundtable meeting in Washington.

The Barclays letter was one of more than 50 submissions from lobbying associations and companies including LCH.Clearnet Group Ltd. and Nasdaq OMX Group Inc.

BlackRock Inc., the world’s largest asset manager, and CME Group Inc., operator of the world’s largest futures exchange, said rates shouldn’t have to be based only on transaction data.

Libor should be changed to have a combination of submission and transaction data, BlackRock managing directors Joanna Cound and James DesMarais said in a Feb. 18 letter.

“We strongly recommend a move to such a hybrid rate benchmark over a move to rate benchmarks based purely on transactions,” they wrote.

CME Group said that the necessary data for a benchmark varies depending on the specific market. The global review “should contain clear language that there be no prescription of methodology, neither for benchmark creation nor for determination of market or price information on which the benchmark is based,” Julie Winkler, CME Group managing director, said in a Feb. 11 letter.

Barclays also said that some illiquid markets may not provide enough data for a transaction-based benchmark.

“Such benchmarks can be useful in providing indicative transparency on normally less transparent markets,” according to the bank’s letter.

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